Government Tries to Bust up a Business it Doesn’t Understand
The Justice Department’s antitrust lawsuit against Google alleging the company illegally monopolizes internet search and advertising is intended to serve consumer interests, expanding choice and competition. But history, particularly in technology, shows antitrust cases are more often examples of government fighting a foe it doesn’t understand.
As Nobel Prize-winning economist Vernon Smith said in a note to George Mason University economist Don Boudreaux:
How do they [those who allege that the U.S. is in the grips of monopolists] explain the fact that Amazon (also EBAY, GOOGLE, FB et al.) are all relatively new firms? They were survivors of the huge creation of new firms in the 1990s and the dotcom crash in 2000-1.
Everything they say about Amazon was being said about IBM in the 1970s-80s. No one could dislodge them from the monopoly power of their operating system; all their clients were locked in. Then came Microsoft that beat ’em fair and square. In the 80s IBM barely survived bankruptcy.
Ask them to list the five top firms, every 10 years, starting in 1950. Their model cannot predict the turnover. Why? If the world has changed after a couple hundred years of the same, why?
The same could be said of Google – which was still a start-up barely on anyone’s radar when the Microsoft antitrust case was winding its way through the courts.
Smith points to this article from the American Enterprise Institute’s Mark Perry on the profound changes in the Fortune 500 from 1955 to 2015. Perry found that just 61 companies that were in the Fortune 500 in 1955 were still there in 2015. And the tech giants government and the political class rail against today? IBM made both lists…but is today seeking to split itself in two to better compete in the changing marketplace.
What government misses is the constant churn of market forces that force companies to adapt, or die. The result is new companies producing products and services that could hardly have been imagined even a decade earlier.
How will the Google antitrust case resolve? Impossible to say. But we should always be skeptical of governments trying to bust up so-called monopolies they really don’t understand…and that may vanish before the litigation is done.